South Africa follows in Fed's footsteps
Head of Macro Analysis
Summary: The macro story behind the SARB rate hike remains a troubled one on multiple fronts.
This certainly indicates that the status quo will likely remain in place at upcoming meetings until more data are available on the evolution of the rand and inflation.
Though the market was surprised by the decision, traders investing in South African assets know very well that the SARB tends to follow the Federal Reserve's monetary policy, as we can see in the chart below. It was only a matter of time before the SARB decide to hike rates.
1. The agrarian reform that should be formally implemented next year has a negative knock-on effect on investors which should limit the potential of a rebound in growth.
2. The mining sector, which is an integral part of South Africa’s economy, is in bad shape. The country’s gold production has been declining since November 2017 and recently reached its lowest level since January 2015 (-20% year-on-year).
3. The country remains ill-prepared to face the consequences of high political risk and a strong USD. Its current account deficit has narrowed since 2014 but still stands at 3.2% of GDP and it does not have enough currency reserves to defend the rand against speculation. South Africa’s reserves represent the equivalent of five months’ worth of imports.
Latest Market Insights
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)